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Sunday, December 18, 2005
Market Recap
The markets closed down Friday slightly in the red on heavy volume, due to the S&P rebalancing and options expiration. We mentioned before that on options expiration days, the indices will most likely finish close to where they started the day without making or losing much ground. This was certainly the case again Friday as the DOW lost just 6 points, the S&P was down 4 points and the lagging NASDAQ lost 8 points. For the week, the DOW gained 97 points while the NASDAQ dropped 4 points and the S&P gained 7 points.
Overall, it was a lackluster week of choppy action, whipsawing those with tight stops out of their shares, making the market tough to trade while it is consolidating its recent gains. Even the good economic news released during the week and the market friendly statement from the FOMC on Tuesday could not seem to spark any heavy buying. Technology and small cap stocks were lagging all week. Large cap stocks took the brunt of the gains which allowed the DOW and S&P to outperform the NASDAQ and Russell 2000.
When Everyone Thinks it Will, It Will not
With only 9 trading days left in 2005, time is running out for a big year end rally. If it is going to happen, it needs to start this week, before institutional traders take the last week of the year off to enjoy the holidays. Volume should be anemic the week between Christmas and New Years. The indices are looking very bullish. They have consolidated the gains made from the October lows and have been trading sideways. This type of action more often than not leads to a breakout of the range and another move higher. This should begin this week, if it is going to happen at all.
All that said, we have discovered some bearish indicators that are stating to pop up and because of these, we cannot be too over confident that the bull market will thrive in 2006. As we mentioned in a previous commentary, it would not surprise us at all if some selling in January took place in the stocks that have lead the market this year. For tax reasons, it makes sense not to sell these winners until January. As far as the bearish signs we are beginning to see lately, there are a few. Market internals have been deteriorating lately. Over the last couple of weeks, growth stocks have lagged. In bull markets, it is the growth stocks that lead the way and when they start to lag, the warning bells should start to sound. Also, overall sentiment is now excessively bullish. When everyone is expecting a bull market run, it rarely happens. This is because when everyone has already bought stocks, there are no buyers left to bring prices higher.
Long Term Portfolio Closed
STHQ has made the decision to do away with our long term portfolio as of December 31, 2005. This portfolio came about by request from members who wanted some longer term trades because they were not short term traders. These members are no longer with us and we see no need to keep this portfolio open when our primary trading style is short term. Overall, the portfolio was a success. There were a total of 9 positions traded, with 10% of portfolio value in each trade. 5 positions were closed; 4 winners and 1 loser. There are 4 positions still open, 1 winner, 2 losers and 1 flat. Even if all the positions were closed today, the portfolio would be up 11% since its inception. We feel the portfolio serves no practical purpose since we are short term traders and therefore are no longer interested in maintaining it
Stockcharts Listing
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http://stockcharts.com/def/servlet/Favorites.CServ...
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STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
For New Members:
Please take a moment to read the "How To Use The Bulletin" link at the bottom of the Bulletin page on the website. It is critical you understand how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
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